The Occupy movements have been attacked for being impractical visionaries. In fact it is the established political classes of the west that are wedded to utopian thinking, while the protesters are recalling us to the actualities of human experience. Based on economic theories that left out human beings, the global free market was supposed to be self-regulating. Now a process of disintegration is under way, in which the structures set up in the post-cold-war period are visibly breaking up.

Anyone with a smattering of history could see that the hubristic capitalism of the past 20 years was programmed to self-destruct. The notion that the world's disparate societies could be corralled into a worldwide free market was always a dangerous fantasy. Opening up economies throughout the world meant ordinary people were more directly exposed to the gyrations of market forces than they had been for generations. As it overthrew existing patterns of life and robbed large numbers of people of any security they might have achieved, global capitalism was bound to trigger a powerful blowback.

For as long as it was able to engineer an illusion of increasing prosperity, free-market globalisation was politically invulnerable. When the bubble burst, the actual condition of the majority was laid bare. In the US a plantation-style economy has come into being, with debt-servitude for the many coexisting with extremes of volatile wealth for the few. In Europe the muddled dream of a single currency has resulted in social devastation in Greece, mass unemployment in Spain and other countries, and even, for some, reversion to a life based on barter: sucking society into a vortex of debt deflation, austerity policies are driving a kind of reverse economic development. In many countries a settled bourgeois existence – supposedly the basis of popular capitalism – has become an impossible aspiration. Large numbers are edging closer to poverty and a life without hope.

History tells us how perilous this process can be. It has been taken for granted that a sudden collapse of the kind that occurred in the former Soviet Union and more recently Egypt cannot happen in advanced market economies. That assumption may be tested severely in coming years. While totalitarian mass movements of the sort seen in the 30s are not going to return, Europe's demons have not gone away. Blaming minorities and immigrants is a perennially popular response to economic dislocation, and ethnic nationalism can be hideously destructive. In the US the continuing demise of the middle class could engender a style of politics even more rancorous and unhinged than that prevailing today. A figure such as Father Coughlin, the Depression-era radio demagogue, shows what can be expected as the economy continues its slide. With the rise of trigger-happy politicians like Mitt Romney and the need for Obama to act tough, it would be unwise to rule out the prospect of another major war.

Despite the claims of some protesters, what is required is not a full-scale retreat from globalisation – though that may happen as countries seek shelter – but a more restrained version of globalisation in which worldwide linkages grow organically, and different countries are not penalised for having different economic systems. A more fragmented world could also be a more stable world. A body of common rules would still be necessary, but there would be no attempt to force convergence on a single type of capitalism. Governments could act as brakes on market forces, rather than – as at present, when they have taken on the debt of reckless banks – being in the position of overleveraged or insolvent hedge funds.

The trouble is that there is no global institution with the authority to frame the necessary reforms. In our multipolar, or non-polar, world, the deciding forces are geopolitical. The prospect in Europe is not only of deepening recession: Germany faces a choice between allowing the European Central Bank to refloat the eurozone through massive quantitative easing or else withdrawing from the eurozone along with Austria, Holland, Finland and maybe some Baltic states. Either way, the European framework put in place after the fall of communism and German reunification will be altered fundamentally. Moving from attacking the peripheral countries to an assault on Italy, Spain and soon France, global markets are unravelling the post-cold-war European settlement.

The emergence of a two-tier eurozone, with Germany leading a Hanseatic-style northern league and France the Mediterranean countries, would sever the Franco-German axis that has for more than 60 years served as the continent's linchpin. Refloating the eurozone by large-scale money-creation could stave off imminent disaster at the price of generating a great inflation a few years down the line; but the divergences between countries, which are the root of the problem, would not be ended. Forcing societies with different wage costs and levels of growth along with different histories and political systems into a single framework, the eurozone would still be a fragile construction.

The departure of Papandreou and Berlusconi has been welcomed, but their replacements – heading technocratic administrations rather than democratically accountable governments – are committed to the same self-defeating policies of austerity. European leaders are turning to China, which is deeply concerned by the crisis. But it is fanciful to imagine that China will bail out a continent that lacks the capacity to govern itself. The risk is that Europe will drift until markets finally lose confidence and trigger a disorderly breakup of the eurozone's unworkable structures. European elites have yet to face the fact that radical change is unavoidable.

The demands of the Occupy movement may be inchoate, or else conflicting. But it is not the protesters who threaten the world economy. The danger comes from denying the fact of systemic crisis. By trying to prop up a system that is chronically dysfunctional, our rulers are making a cataclysmic collapse more likely. So far in Britain only Ed Miliband has acknowledged the importance of the Occupy movement. It should be a warning to the entire political class. The people camped outside St Paul's may have no clear solutions. But it is they – not ruling elites in thrall to a defunct market utopia – who are engaging with reality.